Filed 3/6/13 Lobel Financial v. Baltazar CA4/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication o r ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

LOBEL FINANCIAL CORPORATION,
Plaintiff, Cross-defendant, and Respondent,

v. LUIS BALTAZAR et al., Defendants, Cross-complainants, and Appellants. G046119 (Super. Ct . No. 30-2008-00225258)

O P I N I O N

Appeal from a judgment of the Superior Court of Orange County, David R. Chaffee, Judge. Affirmed. Law Offices of Bruce Adelstein a nd Bruce Adelstein for Defendants, Cross-complainants, and Appellants. Gary Dean Lobel and Ronald J. Green, Jr., for Plaintiff, Cross-defendant, and Respondent.2 Luis Baltazar and his wife, Ma risol Chavez, doing business as Affordable Auto Wholesales (her eafter collectively referred to in the singular as Affordable Auto unless the context indicates otherwise), a ppeal from an $8,730.73 judgment in favor of Lobel Financial Corporation (Lobel). Afford able Auto, a used ca r dealership, sold a customer’s finance contract to Lobel. When the customer defaulte d, Affordable Auto refused to repurchase the contract. On appeal , Affordable Auto contends the trial court erred by enforcing the recourse provision in Affordable Auto’s written agreement with Lobel. We find no error a nd affirm the judgment. FACTS AND PROCEDURE Affordable Auto sells used cars, and in turn it sells its customers’ finance contracts to independent finance companies, su ch as Lobel. On May 28, 2003, Baltazar and Chavez, on behalf of Afford able Auto, signed a form “D ealer Agreement (with limited repurchase obligation)” (hereafter the Dealer Agreement) setting forth terms on which Affordable Auto (designated as “Dealer” in the Dealer Agreement) would sell finance contracts to Lobel (designated as “Company” in the Dealer Ag reement). Paragraph 1 of the Dealer Agreement provided in relevant part, “The contracts will be assigned with full recourse” and paragraph 10 provided, “The Deal er will repurchase all contracts that default in the first three (3) payments of the contract term . . . .” The Dealer Agreement described a rese rve account (Reserve Account) that Lobel internally maintained fo r each dealer from which a dealer could additionally profit if the dealer’s customers, as a group, honored their payment obligations and paid off their loans. Paragraph 4 of the Dealer Agreement provided in full: “The Company will withhold a percentage on each contract purchased from the Dealer and credit that amount to the Reserve Account. It is the in tent of the parties that the fu nds in the Reserv e Account shall be accumulated to an amount equal to [30 pe rcent] of the gross aggregate outstanding balance due on all contracts purchased by th e Company hereinafter referred to as the3 Minimum Reserve Requirement. When determining whether the Minimum Reserve Requirement is satisfied the Company will de duct from the balance of the Reserve Account any amounts owing to the Company by the [veh icle purchasers] and the Dealer, including, without limitation, amounts owing for contracts which the Dealer is required to repurchase under the agreement.” Paragraph 5 of the Dealer Agreement provided “the Company may set off or charge against the Reserve Account any and all indebtedness owed for any reason by the Dealer to the Company. . . . Refunds from th e Reserve Account will be paid to the Dealer only to the extent that the amount of said Reserve Account exceed s the Minimum Reserve Requirement . . . .” Paragraph 7 of the Dealer Agreement pr ovided: “The Dealer understands and agrees that the Dealer has no present pr oprietary or possessory interest in the Reserve Account. The Dealer must claim the reserve within five years from the date that the last contract was purchased by the Company. . . . Should the Dealer fail to repurchase any contracts [or otherwise breach the Dealer Agreement] the entire Reserve Account will become the property of the Company.” Paragraph 10 of the Dealer Agreement provided: “The De aler will repurchase all contracts that default in th e first three (3) payments of the contract term, whether or not the . . . vehicle was repossessed. Any losses sustained after three (3) payments shall be charged against the Reserve Account only. Th e Dealer’s liability shall be limited to the funds in the Reserve A ccount. . . . If the Dealer fails to repurchase a contract due for repurchase the Company may take the procee ds from the Reserve Account. . . . The obligations of the Dealer to repurchase cont racts from the Company shall not be in any manner dependent upon or related to the balance in the Reserve Account.” Bad Debt Election Form At the same time they executed the De aler Agreement, A ffordable Auto and Lobel also executed a document titled “Bad Debt Election Form.” It provided in relevant4 part, “California Sales and Use Tax Regul ation 1642 allows the retailer [i.e., Affordable Auto] or the lender [i.e., Lobel] to claim a deduction or refund for bad debt losses from account(s) held by the lender without recourse. The retailer and the lender must file an election with the [Fra nchise Tax] Board designating which of them may claim the deduction or refund. This election will a ssign those rights to the lender as outlined below. . . . By signing this elec tion, both parties agree to the following: [¶] 1. The retailer relinquishes all rights to the account to the lender. [¶] 2. The lender is entitled to claim any (and all) deduction or refunds as a result of a ny bad debt losses charged off by the lender for the accounts covered by this el ection as of 10-1-99 and forwar d. The retailer relinquishes all rights to claiming such deduc tion or refunds. [¶] 3. This election is a blanket election for all accounts assigned without recourse by the retailer to the lender or all accounts held by the lender without recourse pursuant to the lender’s contract directly with the retailer.” Parties’ Course of Dealing Over the course of their business re lationship, from 2003 through 2008, Lobel bought 481 finance contracts fro m Affordable Auto. During that time, 53 contracts went into default during the three-month recourse period and each tim e Affordable Auto repurchased the contract. Also during that time, Lobel sent Affordable Auto monthly statements detailing the amounts it had credited to and debited from the Reserve Account. On two occasions, Lobel sent Affordab le Auto a check fo r $1,000 from the
Reserve Account. Chaidez Contract In February 2008, Affordab le Auto sold a used car to Eduardo Chaidez. The amount financed was $9,389.84, pa yable in monthly installments of $356.46 for 36 months.
Affordable Auto sold the finance contract to Lobel. The assignment invoice reflected a 25 percent reserve amount ($2, 347) would be deducted from th e total financed amount (plus a $150 document fee), Affordab le Auto was to receive a ch eck for $6,892.39 from Lobel (which it received on March 3, 2008), and ther e would be a three payment repurchase period5 (i.e., Affordable Auto ha d to repurchase the contract if Ch aidez defaulted in the first three payments). Chaidez defaulted af ter the second payment. Lobe l repossessed the vehicle and demanded that Affordable Auto repurchase the contract, but Affordab le Auto refused. Lobel eventually sold the ve hicle at auction for $3,703, leaving a balance due on the contract of $6,765.86. Complaint & Cr oss-complaint Lobel filed a complaint against Afford able Auto seeking to recover damages of $6,765.68, plus interest, fo r Affordable Auto’s re fusal to repurchase the Chaidez contract. Affordable Auto filed a cro ss-complaint alleging numerous causes of action primarily relating to the Reserve Account and requesting an accounting. The cross-complaint also contained a cause of action under the Unfair Competition Law (UCL) (Bus. & Prof. Code, § 17200 et seq.). It alleged Lobel engaged in deceptive busi ness practices by entering into the Dealer Agreement with Affo rdable Auto, which pr ovided that customer contracts were purchased with recourse against Affordable Au to, but then executing a Bad Debt Election Form stating finance contracts were assigned without recourse , which thus might have allowed Lobel to collect sales tax refunds on bad debts when A ffordable Auto should have been entitled to the refu nd. The matter proceeded to a bench trial. Trial Testimony Joseph Hernandez was Lobel’s dealer se rvices manager. Hernandez testified that when Lobel buys a finance contract, it is essentially buying the right to receive payment from the buyer of the vehicle. He testified the Dealer Agreement a nd documents relating to the Chaidez contract required Affordable Auto to repurcha se the contract if Chaidez defaulted in the first three payments. Lobel pa id Affordable Auto $6 ,892.39 for the Chaidez contract, the total value of the Chaidez contract to Lobel was $12,832.56 (i.e., that was the total of the payments—principal and interest —Chaidez should have made to Lobel under the contract), Chaidez defaulted after the seco nd payment, the car wa s repossessed July 7, 2008, sold at auction for $3,703, and Affordab le Auto did not repurchase the contract.6 Lobel charged off a $6,765.86 loss against the Reserve Account. Hernandez testified Chavez called him about Lobel’s repurchase dema nd, asking for the repurchase balance due. Chavez said she would call him back but neve r did. The Chaidez contract was the only contract Affordable Auto refused to repurchase. Hernandez explained Lobe l had two programs under which it bought finance contracts from car dealers, incl uding Affordable Auto: a discount program and a reserve program. Under the discount program, Lobel wo uld pay a discounted price for the contract and no amount of money would go into a reserve. The Dealer Agreement with Affordable Auto covered Lobel’s reserve prog ram, not the discount program. Under the reserve program, Lobel would withhold a pe rcentage, which varied between 20 and 30 percent depending on the risk involved with the particular transaction. The reserve percentage was credited to the dealer’s Reserv e Account. The total in the Reserve Account always had to be equal to 30 percent of a ll of the dealer’s outstanding loans before the dealer could get any kind of payout from th e Reserve Account. Any bad loans from the dealer that were not repurchased by the d ealer reduced the value of the dealer’s Reserve Account. Hernandez explained the amount Lobe l withholds on a particular finance contract would be noted on the approval form it sends to the dealer when it agrees to buy that contract. In the case of the Chaidez cont ract, the approval form showed Lobel withheld 25 percent for the Reserve Acc ount. The amount of the reserve could be negotiated and often was. Although a less than 30 percent rese rve made it harder for the dealer’s Reserve Account to ever get to the minimum 30 percen t balance to permit any payout, the dealers usually wanted more money upfr ont for the finance contracts they were selling. Lobel gave dealers a monthly accounti ng of the Reserve Account. By th e time of trial in August 2011, Affordable Auto’s Rese rve Account was “upside down” by $17,000. Hernandez explained the Bad Debt Elec tion Form was a form that could be filed with the State Board of Equalization in a nonrecourse assignment to allow Lobel to get7 a refund of sales tax if the cu stomer defaulted. To Hernandez’s knowledge, Lobel never collected sales tax refund on bad debts from A ffordable Auto contracts. The Bad Debt Election Form only had relevance if the assignm ent was held without recourse. Hernandez was unsure if Lobel ever took assignments of finance contracts from Affordable Auto without recourse—but thought pe rhaps one or two contracts were funded that way over the
years. Baltazar and his wife, Chavez, both testified Affordab le Auto did not repurchase the Chaidez contract because of a dispute over the amount it owed Lobel. (However, Chavez also testified she refused to repurchase the Chaidez contract because she thought the Bad Debt Election Form made all A ffordable Auto finance contracts assigned to Lobel nonrecourse assignments.) Baltazar and Chavez testifie d Affordable Auto regularly repurchased financed contracts from Lobel a nd other finance companies. They both understood Affordable Auto wa s contractually obligated to repurchase a finance contract that went into default during the three-month recourse period. The recourse requirement in Lobel’s Dealer Agreement was similar to what other finance companies required. This was the only time Affordable Auto did no t honor its repurchase obligation. Baltazar and Chavez both testified as to their understanding of how the Reserve Account was supposed to work. On any contract a ssigned to Lobel, Lobel was suppose to give Affordable Auto 70 percent of the financed amount immediately and put the other 30 percent in the Rese rve Account. Affo rdable Auto was su pposed to get the remaining 30 percent for each fina nce contract when the customer paid off the car loan. But Hernandez agreed from 2003 to 2008 Affordable Auto only ev er received two checks for $1,000 each from the Reserve Account, the check s did not identify any specific contract (car loans) they represented, they just said “Reserve Pr ogram” on them, and Affordable Auto received monthly statemen ts of the Reserve Account. Baltazar and Chavez both understood that Lobel could char ge off any bad debts against the Reserve Account. Chavez8 testified she understood the Reserve Account was not tracked by each contract sold to Lobel, rather it was one big pool. Chavez testified that when a buyer de faulted during the recourse period and the car was repossessed, Affordab le Auto normally received a noti ce of intent to dispose of collateral and Affordable Auto could get the vehicle back. Affordable Auto did not receive such a notice from Lobel with rega rds to the Chaidez vehicle. In closing argument, Affordable Auto argued the Bad Debt Election Form and the Dealer Agreement shou ld be interpreted together as pr oviding that all finance contracts assigned to Lobel were without recourse. No statement of decision was requested and none was issued by the trial court. In ruling, the trial court orally explained Lobel’s use of a three-month recourse period and the Reserve Account were completely reasonable methods of securing performance of the finance contra cts by Affordable Auto’s customers—“I don’t see anything inherently wrong or in violation of some standa rd of business or law in the State of California.” The court observed that Affordable Auto presen ted no evidence Lobel misappropriated or improperly withheld any of the money in the Reserve Account. It would have taken a forensic accounta nt to demonstrate any impropr ieties and Affo rdable Auto offered no expert testimony or accounting documents. The court entered judgment for Lobel on its complaint in the principal amount of $6,765.86, plus $1,964.87 in interest, and
for Lobel on Affordable Auto’s cross-complaint. The court denied Affordable Auto’s motion for new trial. DISCUSSION A. Judgment on Lobel’s Complaint Affordable Auto contends the judg ment awarding Lobel damages on its complaint must be reversed because the trial court erroneously interpreted the Dealer Agreement as providing the Ch aidez contract was assigned to Lobel with recourse

. Affordable Auto assert s that when the Dealer Agreemen t and the Bad Debt Election Form are read together, there is an obvious conf lict between them—with one providing there is9 recourse and one providing there is not—and th e only way to reconcile that conflict is to interpret all assignments as being without r ecourse. The argument is without merit. “‘The fundamental goal of contract interpretation is to give effect to the mutual intention of the parties as it existed at the time they entered into the contract.’ [Citation.] ‘When a contract is reduced to wr iting, the intention of the parties is to be ascertained from the writing alone, if possible.’ [C itations.] ‘“We consider the contract as a whole and construe the language in context, rather than interpre t a provision in isolation.”’ [Citation.] When the language of the instrument is unambiguo us, we determine the parties’ intent solely by reference to that language. [Citations.]” ( PV Little Italy, LLC v. MetroWork Condominium Assn. (2012) 210 Cal.App.4th 132, 145-146; see also Founding Members of the Newport Beach Country Club v. Newport Beach Country Club, Inc. (2003) 109 Cal.App.4th 944, 955-956.) We review the interpretation of a contract de novo unless the interpretation turns on the cred ibility of extrinsic evidence. ( Morgan v. City of Los Angeles Bd. of Pension Comrs. (2000) 85 Cal.App.4th 836, 843.) Affordable Auto argues the Dealer Agreement and the Bad Debt Election Form must be construed as one contract under Civil Code section 1642, which provides that “several contracts relating to the same matters, between the same partie s, and made as parts of substantially one transaction, are to be taken together[,]” beca use the two documents were executed at the same time and both pertain to Lobel’s purchase of finance contracts from Affordable Au to. (See, e.g., Vons Companies v. Lyle Parks, Jr., Inc. (2009) 177 Cal.App.4th 823, 834.) Lobel agrees the documents should be considered together. Although we do not quarrel with that proposition, it does not aid Affordable Auto because there is no conflict between the pr ovisions of the two documents. It is a fundamental rule of contractinterpretation that “[c]ontradictory or inconsistent provisions of a contract are to be reconciled by interpreting the language in such a manner that will give effect to the entire contract. (Civ. Code, §§ 1641, 1652; Siligo v. Castellucci (1994) 21 Cal.App.4th 873, 880-881 . . . .) A contract term should not10 be construed to render some of its pr ovisions meaningless or irrelevant. ( AIU Ins. Co. v. Superior Court (1990) 51 Cal.3d 807, 827-828 . . . .)” ( Estate of Petersen (1994) 28 Cal.App.4th 1742, 1753-1754, fn . 4.) Additionally, “A cont ract must receive such an interpretation as will make it lawful, operative, definite, reasonable, and capable of being carried into effect, if it can be done without violating the intention of the parties.” (Civ. Code, § 1643.) The gist of Affordable Auto’s argument is the Deal er Agreement provides for the assignment of contracts to Lobel with recourse but the Bad Debt Election Form states the assignments are without recourse , thus allowing Lobel to cl aim sales tax refunds on bad debts. Affordable Auto argues the existenc e of the Reserve Account against which Lobel can charge defaulting A ffordable Au to loans after the three-month recourse period has expired in effect means all contract assignments are recourse assignments. Affordable Auto argues that because Lobel can debit bad loans ag ainst the Reserve Accoun t, Affordable Auto alone bears the risk of defaults on its cust omers’ finance contracts. Accordingly, Affordable Auto reasons, to av oid an interpretation of the Bad Debt Election Form that renders it at best meaningless (i .e., if assignments are made with recourse , then Bad Debt Election Form serves no purpose), or at wo rst illegal (i.e., the Bad Debt Election Form allows Lobel to fraudulently claim sales tax refunds on bad debts to which it is not entitled because the account is held with recourse), we must interpret the two contracts together as providing that all assignments of contract s to Lobel are made without recourse. Preliminarily, we do not agree with Affordable Auto’s premise that the existence of the Reserve Account means all finance contracts Lobel acquired from Affordable Auto are he ld with recourse to Affordable Auto for payment in the event of default. Affordable Au to points out that “recourse” genera lly means having resort to other property of the seller to meet the repayment obligation. (See, e.g., Cook v. Superior Court (1936) 12 Cal.App.2d 608, 613.) But the Dealer Agreement specifically states, “The Dealer understands and agrees that the Dealer has no present proprie tary or possessory interest in11 the Reserve Account .” (Italics added.) A ffordable Auto is only en titled to payment from the Reserve Account Reserve when the Reserve Account exceeds 30 percent of the total of all of its customers’ outstanding finance contract s after deducting from the Reserve Account any amounts Lobel has to write off for bad debt s from Affordable Auto’s customers. It is correct to say the Reserve Account gives Lobel added security when purchasing Affordable Auto’s finance c ontracts—as the trial court observed, Affordable Auto’s potential to eventually receive a payout from the Reserve Account gives it an extra incentive to make sure its customer base as a whole has been adequately ve tted as to the ability to make car payments. But there certainly comes a point at which even the Reserve Account is meaningless as added security—indeed, the only ev idence in the record is that by the time of trial Affordable Auto’s Reserv e Account was in the red by $17,000, meaning Lobel now has no recourse against Affordable Auto for any remaining outstanding Affordable Auto acquired loans that go into default. Thus, A ffordable Auto’s claim that it alone bears the risk of bad loans is false. Moreover, even if the Rese rve Account is a form of recourse, there simply is no merit to Affordable Auto’s contention the Dealer Agreem ent and the Bad Debt Election Form conflict. The Bad Debt Election Form is a document required by California Code of Regulations, title 18, section 1642, which allows an income tax deduction for or refund of sales tax that was paid by a retailer in relation to what eventually has became a bad debt. If the account was assigned by the retailer to a lender, and the lender ho lds the debt without recourse, either the retailer or the lender (but not both) can claim the refund or deduction. “In order for the retailer or the lender to cl aim a deduction or refund for bad debt losses from an account held by the lender without recourse , the retailer and the lender must file an election with the [Franchise Tax] Board designating which of them may claim such deduction or refund.” (Cal. Code Regs., tit. 18, § 1642, subd. (i)(3)(A ), italics added.) The written election must contain specified informa tion and include “[a] list of accounts to which the election pertains. If the election is a blanket election for all accounts assigned12 without recourse by the retailer to the lende r or all accounts held by the lender without recourse pursuant to the lender’s contract dir ectly with the retailer, the election must so state.” (Cal. Code Regs., tit. 18, § 1642, subd. (i)(3)(A)(4).) Here, the Bad Debt Election Form states it is a blanket election that Lobel is entitled to claim the sales tax deduction or refund for “ all accounts assigned without

recourse by the retailer to the lender or all accounts held by the lender without

recourse . . . .” (Italics added.) It does not state that all contracts assigned to Lobel by Affordable Auto ar e assigned or held without recourse. On its face, the Bad Debt Election Form provides only that if an account was assigned without recourse, or is held without recourse, then Lobel may claim the sales tax refund. The Bad Debt Election Form only has relevance when there no longer is recourse on a debt. It does not constitute an agreement or a representation to the Franchise Tax Board that all accounts bought by Lobel from Affordable Auto are w ithout recourse, only that when ther e is no recourse on a bad debt, Lobel and not Affordable Auto gets to cl aim the sales tax deduction or refund. Moreover, there is no evidence sugges ting the parties gave the Bad Debt Election Form any different interpretation than the one that is plain on its face. Hernandez testified that perhaps once or twice over the years Lobel bought a contract from Affordable Auto without recour se, but there was no evidence thos e contracts ever went into default. And there was no evidence Lobel construed the Bad Debt Election Form as permitting it to claim a sales ta x refund on Affordable Auto contracts that were held with recourse. Indeed, the only evidence at tr ial was Hernandez’s testimony that to his knowledge Lobel has never sought a sales tax refund on any ba d debt from one of Affordable Auto’s contracts. Thus, Affordable Auto’s premis e, that the Dealer Agreement and Bad Debt Election Form are in irrec oncilable conflict, is a faulty one. Having concluded there is no conflict between the Dealer Agreement and the Bad Debt Election Form, the breach of contract judgment against Affordable Auto must be affirmed. The Dealer Agreemen t provided for a three-month recourse period during which13 Affordable Auto was ob ligated to repurchase th e Chaidez contract if it went into default, and it is undisputed Chaidez defaulted within that recourse period. Baltazar and Chavez both testified they understood the repurch ase requirement, and the evidence was uncontroverted that on 53 occas ions Affordable Auto honored its repurchase obligation. Baltazar and Chavez both testif ied Affordable Auto refuse d to repurchase the Chaidez contract because of disputes over the am ount owed. Lobel presented evidence the repurchase amount was $6,765.86, and Affordab le Auto presented no evidence to the contrary. B. Judgment on th e Cross-Complaint We need only briefly a ddress Affordable Auto’s arguments pertaining to its cross-complaint. First, Affordable Auto asserts that because the Dealer Agreement and Bad Debt Election Form must be in terpreted as providing that all contracts Affordable Auto sold to Lobel over the years were sold and held by Lobel without recourse, then any bad debts Lobel charged against the Reserv e Account was done in breach of the Dealer Agreement. Affordable Auto acknowledges it presented no evidence as the amo unts so charged. Inasmuch as we have already determined that Affordable Auto’s prem ise is wrong—there is no conflict between the Dealer Agreement and the Bad Debt Election Form—we reject its contention. Affordable Auto also contends it dem onstrated as a matter of law that Lobel engages in an unfair and deceptive business prac tice in violation of the UCL by including in its Dealer Agreement a provisi on that contracts are assigned with recourse, but then taking the position the Bad Debt Election Form permits it to claim sales tax re funds on contracts it holds without recourse. Affordable Auto contends Lobel essentially has positioned itself to be able to claim sales tax refunds for bad de bt write-offs to which it is not entitled. For reasons already discussed, Affordable Auto ’s premise is wrong—there is no conflict between the documents. Afford able Auto has failed to dem onstrate Lobel has engaged in14 any an unfair and deceptive business practices. Moreover, even were there any merit to the premise of Affordable Auto ’s argument, its UCL cause of action fails for a more fundamental reason. To prevail on a UCL clai m, a plaintiff must prove he or she “has suffered injury in fact and has lost money or property as a re sult of the unfair competition.” (Bus. & Prof. Code, § 17204.) Thus, the plaintiff must estab lish both injury in fact and “some form of economic injury” that has a ca usal connection to the unfair competition. ( Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310, 323, 326.) Affordable Auto concedes there is absolutely no evidence Lobel has ever sought a sales tax refund based on

any bad debt write off, let alone one arising from an account it purchased from Affordable Auto. Affordable Auto’s failure to demonstrate it suffered an y injury in fact from the allege unfair business practice is fa tal to its UCL claim. DISPOSITION The judgment is affirmed. Respon dent is awarded its costs on appeal.

O’LEARY, P. J.

WE CONCUR:

RYLAARSDAM, J.

THOMPSON, J.